Posts Tagged ‘TurboTax’

The debate over the fiduciary standardthat will become applicable to many financial professionals may be coming to a head as the looming deadline for comments on SEC proposals has motivated some advisors to express disapproval over a perceived weakening of the potential standard. Because a heightened fiduciary standard could increase advisors’ compliance costs, while simultaneously increasing consumer confidence in the quality of their advice, it is critical that advisors know the rules of the game.

Recent indications that the SEC may deviate from its previously expressed intent to expand the traditional standard applicable to investment advisors, however, represent a curveball for advisors who are not currently subject to a strict fiduciary standard; the outcome once again seems up for grabs.

Although at least 25 percent of all US retirement assets are held in personal retirement accounts (IRAs), until now, only limited data existed on asset allocations in IRAs. Consequently, the retirement prospects of retirees owning IRAs have been a mystery.

New developments from the Employee Benefit Research Institute (EBRI) gives us a preview into self-directed accounts like IRAs, providing hard data on the investing behavior of account owners and giving us insight into common problem areas in these accounts.

EBRI’s database includes information on 11.1 million individuals’ 14.1 million individual retirement accounts. Assets in the tracked accounts amount to $732.9 billion.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

The IRS commenced the Large Business and International Division’s high-wealth industry group (“HNW Initiative”) in October 2009 with the aim of examining high-net worth individuals for income tax compliance. But the Service may be “using more rhetoric than resources,” according to Syracuse University’s Transactional Records Access Clearinghouse (TRAC). TRAC’s April 14 report, based on information compiled from public records, accuses the IRS of having “very skimpy” audit goals for the HNW initiative.

TRAC’s orginal goal was to audit a mere 122 returns for the 2011 fiscal year. However, according to reports, TRAC will fall far short of this modest benchmark, and instead only audit 19% of the projected returns for the first six months of the year.

Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber)

In recent years, the IRS has increased its search for taxpayers who fail to disclose a gift tax return for reportable transactions. Now, the Justice Department’s Tax Division is getting in on the action, initiating an unprecedented fishing expedition and scouring state government records for information that may lead to taxpayers who have failed to file a gift tax return.

The Justice Department hopes to collect the identities of taxpayers who have gifted real property to relatives without reporting the transaction to the IRS. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

The Tax Court has reopened the question of whether status as a limited partner entitles them to an exemption from self-employment taxes—an issue that’s been idle for over 13 years. The Tax Court recently declared that status as a limited partner does not necessarily exempt a partner from self-employment taxes. Instead, the exemption is derivative on how substantial of a role the partner played in the partnership business. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

If you have small business clients who are struggling with back taxes and/or tax liens, you can tell them help is on the way. The IRS is offering assistance for both individuals and small businesses that are struggling to “meet their tax obligations, without adding unnecessary burden to [the] taxpayers.” The new program includes a number of features discussed in today’s Advanced Markets Journal. Read this complete analysis of the impact at AdvisorFX(sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

In the midst of the tax filing season, the Internal Revenue Service released the 2011 version of its discussion of many of the more common “frivolous” tax arguments made by individuals and groups that oppose compliance with federal tax laws.

The Service suggested that “anyone who contemplates arguing on legal grounds against paying their fair share of taxes should first read their 84-page document, The Truth About Frivolous Tax Arguments.” At AdvisorFYI, we are not contemplating any particular legal grounds for not paying a “fair share of taxes”, whatever that may be, but rather are interested in presenting some of the frivolous positions argued and how the Government generally responds. We’ve presented a few select ones below.

The 2011 IRS document explains many of the common “frivolous” arguments made in recent years and it presents a legal position that attempts to refute these claims. The IRS claims, the document “will help taxpayers avoid wasting their time and money with frivolous arguments and incurring penalties.”

Congress in 2006 increased the amount of the penalty for frivolous tax returns from $500 to $5,000. The increased penalty amount applies when a person submits a tax return or other specified submission, and any portion of the submission is based on a position the IRS identifies as frivolous.

Here are some of positions we found to be commonly marketed to the public, and how the IRS responds to the positions: Read the analysis at AdvisorFYI

In a recent case, the IRS denied an estate a fractional interest discount on the family ranch, resulting in a seven digit tax bill and the likely liquidation of the family homestead. The father had numerous options for securing a valuation discount on, or excluding the value of, a significant tract of property from his gross estate, but hadn’t done any planning since 1965, resulting in total denial of a discount. When he died in 2004, the property was worth $6,390,000. Don’t let this be your client.

The dispute between the IRS and the father’s estate centered on whether the property’s value in the gross estate was: (1) the undiscounted value of a fee simple interest in the property or (2) the aggregated value of the children’s fractional interests in the property—valued separately with fractional interest discounts. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

Company is an accrual basis fiscal year taxpayer. Company pays severance benefits in its discretion on an ad hoc basis, and vacation benefits pursuant to its established policy.

Historically, Company has paid both severance and vacation pay from its general assets. Due to a decline in the Market over the past few years, Company has paid significant severance and expects to continue to pay additional severance over the next few years. Effective Jan 1, 2009 Company established Trust to pay this anticipated severance and vacation pay. Trust intends to submit an application for recognition of exempt status in 2010. On 1/1/2009 Company contributed over $1,000,000 to the Trust and deducted that amount on its tax return for 2009. Company indicates that beginning in 2010, Company will make payments for vacation and severance and will seek reimbursement from the Trust.

Company computed the amount deducted based on the limitation set forth in the Code.

Company has not provided any information documenting any severance claims incurred in 2009 that it expects to pay in 2010. Company indicates that because the Trust was established “to pay severance that they anticipate they will have to pay over the next few years …”, and because the amount deducted is within the limit set forth in the Code that the deduction is proper. Read the analysis at AdvisorFYI

Recently, in a series of Announcements the Internal Revenue Service stated that it was developing a schedule requiring certain business taxpayers to report uncertain tax positions on their tax returns.

Now the new requirements have been finalized, businesses and wealth managers have a better idea of the direction of Uncertain Tax Position reporting.

Reported under Schedule UTP for Form 1120 series, the Uncertain Tax Position reporting currently applies to a select number of corporations (however phase-in provisions will change this by 2012 and 2014).

Who must file a Schedule UTP?

The class of organizations that must file is limited (for now). Generally, for 2010 tax year returns most small businesses will not be included in the reporting, but that will probably change. Nevertheless, a corporation must file Schedule UTP with its 2010 income tax return if: To read this article excerpted above, please access AdvisorFYI

A member of the U.S. military who takes a leave of absence from his private sector job in order to go on active duty will often face a pay cut—the differential between his military and private sector pay. Some employers make up this differential by paying employees who are on active duty a partial salary. Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

Why is this Topic Important to Wealth Managers? We examine the IRS requirements set out in its Publication 587 for determining when a “part” of a home is used and whether that use qualifies as “exclusively and regularly as your principal place of business”.

Yesterday we opened the discussion by what authority of the Code a taxpayer may be allowed to deduct a business expense for use of part of his home in the pursuit of a trade or business. Today we turn to the following questions: What type of residence qualifies for this deduction? And the requirements for determining when a “part” of a home is used and whether that use qualifies as “exclusively and regularly as your principal place of business”.

What type of residence qualifies for this deduction? Many taxpayers narrowly consider that the “home office” deduction only applies for the traditional house with the white picket fence. But the Code’s section does not use the word “home”. Yesterday we noted that Congress chose the phrase “dwelling unit”. So what is a dwelling unit? The Section toward its end contains this definition: “The term ”dwelling unit” includes a house, apartment, condominium, mobile home, boat, or similar property ….” Thus, taxpayers who are homeowners, condo-owners, renters of apartments, even a boat owner or renter, may potentially leverage this deduction.

What constitutes a “portion” of the dwelling unit? To read this article excerpted above, please access www.AdvisorFX.com